The Group of Twenty (G-20) Finance Ministers and Central Bank Governors was established in 1999 to bring together systemically important industrialized and developing economies to discuss key issues in the global economy. The inaugural meeting of the G-20 took place in Berlin, on December 1516, 1999, hosted by German and Canadian finance ministers.

Mandate

The G-20 is an informal forum that promotes open and constructive discussion between industrial and emerging-market countries on key issues related to global economic stability. By contributing to the strengthening of the international financial architecture and providing opportunities for dialogue on national policies, international co-operation, and international financial institutions, the G-20 helps to support growth and development across the globe.

Origins

The G-20 was created as a response both to the financial crises of the late 1990s and to a growing recognition that key emerging-market countries were not adequately included in the core of global economic discussion and governance. Prior to the G-20 creation, similar groupings to promote dialogue and analysis had been established at the initiative of the G-7. The G-22 met at Washington D.C. in April and October 1998. Its aim was to involve non-G-7 countries in the resolution of global aspects of the financial crisis then affecting emerging-market countries. Two subsequent meetings comprising a larger group of participants (G-33) held in March and April 1999 discussed reforms of the global economy and the international financial system. The proposals made by the G-22 and the G-33 to reduce the world economy’s susceptibility to crises showed the potential benefits of a regular international consultative forum embracing the emerging-market countries. Such a regular dialogue with a constant set of partners was institutionalized by the creation of the G-20 in 1999.

Membership

The G-20 is made up of the finance ministers and central bank governors of 19 countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States of America, and also the European Union who is represented by the rotating Council presidency and the European Central Bank. To ensure global economic fora and institutions work together, the Managing Director of the International Monetary Fund (IMF) and the President of the World Bank, plus the chairs of the International Monetary and Financial Committee and Development Committee of the IMF and World Bank, also participate in G-20 meetings on an ex-officio basis. The G-20 thus brings together important industrial and emerging-market countries from all regions of the world. Together, member countries represent around 90 per cent of global gross national product, 80 per cent of world trade (including EU intra-trade) as well as two-thirds of the world’s population. The G-20’s economic weight and broad membership gives it a high degree of legitimacy and influence over the management of the global economy and financial system.

Achievements

The G-20 has progressed a range of issues since 1999, including agreement about policies for growth, reducing abuse of the financial system, dealing with financial crises and combating terrorist financing. The G-20 also aims to foster the adoption of internationally recognized standards through the example set by its members in areas such as the transparency of fiscal policy and combating money laundering and the financing of terrorism. In 2004, G-20 countries committed to new higher standards of transparency and exchange of information on tax matters. This aims to combat abuses of the financial system and illicit activities including tax evasion. The G-20 also plays a signficant role in matters concerned with the reform of the international financial architecture.

The G-20 has also aimed to develop a common view among members on issues related to further development of the global economic and financial system and held an extraordinary meeting in the margins of the 2008 IMF and World Bank annual meetings in recognition of the current economic situation. At this meeting, in accordance with the G-20s core mission to promote open and constructive exchanges between advanced and emerging-market countries on key issues related to global economic stability and growth, the Ministers and Governors discussed the present financial market crisis and its implications for the world economy. They stressed their resolve to work together to overcome the financial turmoil and to deepen cooperation to improve the regulation, supervision and the overall functioning of the worlds financial markets.

Chair

Unlike international institutions such as the Organization for Economic Co-operation and Development (OECD), IMF or World Bank, the G-20 (like the G-7) has no permanent staff of its own. The G-20 chair rotates between members, and is selected from a different regional grouping of countries each year. In 2009 the G-20 chair is the United Kingdom, and in 2010 it will be South Korea. The chair is part of a revolving three-member management Troika of past, present and future chairs. The incumbent chair establishes a temporary secretariat for the duration of its term, which coordinates the group’s work and organizes its meetings. The role of the Troika is to ensure continuity in the G-20’s work and management across host years.

Former G-20 Chairs

1999-2001 Canada

2002 India

2003 Mexico

2004 Germany

2005 China

2006 Australia

2007 South Africa

2008 Brazil

Meetings and activities

It is normal practice for the G-20 finance ministers and central bank governors to meet once a year. The last meeting of ministers and governors was held in São Paulo, Brazil on 8-9 November 2008. The ministers’ and governors’ meeting is usually preceded by two deputies’ meetings and extensive technical work. This technical work takes the form of workshops, reports and case studies on specific subjects, that aim to provide ministers and governors with contemporary analysis and insights, to better inform their consideration of policy challenges and options.

Towards the end of 2008 Leaders of the G-20 Countries meet in Washington. See theDeclaration and action plan from the Washington Summit (PDF 72KB) . This meeting remitted follow up work to Finance Ministers. In addition to their November meeting in order to take forward this work in advance of the Leaders summit in London on 2nd April Finance Ministers and Central Bank Governors will also meet in March 2009. A deputies meeting will be held in February 2009 to prepare for the Ministers meeting.

Interaction with other international organizations

The G-20 cooperates closely with various other major international organizations and fora, as the potential to develop common positions on complex issues among G-20 members can add political momentum to decision-making in other bodies. The participation of the President of the World Bank, the Managing Director of the IMF and the chairs of the International Monetary and Financial Committee and the Development Committee in the G-20 meetings ensures that the G-20 process is well integrated with the activities of the Bretton Woods Institutions. The G-20 also works with, and encourages, other international groups and organizations, such as the Financial Stability Forum, in progressing international and domestic economic policy reforms. In addition, experts from private-sector institutions and non-government organisations are invited to G-20 meetings on an ad hoc basis in order to exploit synergies in analyzing selected topics and avoid overlap.

External communication

The country currently chairing the G-20 posts details of the group’s meetings and work program on a dedicated website. Although participation in the meetings is reserved for members, the public is informed about what was discussed and agreed immediately after the meeting of ministers and governors has ended. After each meeting of ministers and governors, the G-20 publishes a communiqué which records the agreements reached and measures outlined. Material on the forward work program is also made public.

Emerging markets, led by China and Russia, plan to jointly challenge the U.S. dollar’s role as the world’s sole benchmark currency at the April 2 meeting of the Group 20 nations – a move that underscores the currency’s weakness and fading support around the world.

Russian authorities previously met with financial ministers and central bankers from China, Brazil and India on March 13. The group issued its first-ever joint communiqué ahead of the G20 finance ministers last Saturday, March 14. The joint statement did not mention a new currency like Russia proposed, but an unidentified source told Reutersthat the issue was discussed.

Without explicitly mentioning to the U.S. dollar, Zhou asked what kind of international reserve currency does the world needs to secure global financial stability and facilitate economic growth.

According to Zhou, the dollar’s unique status as the world’s primary currency reserve has resulted in increasingly frequent financial crises ever since the collapse of the Bretton Woods system in 1971.

“The price is becoming increasingly higher, not only for the users, but also for the issuers of the reserve currencies,” Zhou said. “Although crisis may not necessarily be an intended result of the issuing authorities, it is an inevitable outcome of the institutional flaws.”

Zhou called for the “re-establishment of a new and widely accepted reserve currency with a stable valuation” to replace the U.S. dollar – a credit-based national currency. The central bank governor noted that the International Monetary Fund’s Special Drawing Right (SDR) should be given special consideration.

“The SDR has the features and potential to act as a super-sovereign reserve currency,” said Zhou. “Moreover, an increase in SDR allocation would help the Fund address its resources problem and the difficulties in the voice and representation reform. Therefore,efforts should be made to push forward a SDR allocation.”

Zhou proposed the following actions to move the SDR in a direction that could better accommodate demand for a more stable reserve currency:

Set up a settlement system between the SDR and other currencies. Therefore, the SDR, which is now only used between governments and international institutions, could become a widely accepted means of payment in international trade and financial transactions.

Actively promote the use of the SDR in international trade, commodities pricing, investment and corporate bookkeeping. This will help enhance the role of the SDR, and will effectively reduce the fluctuation of prices of assets denominated in national currencies and related risks.

Create financial assets denominated in the SDR to increase its appeal. The introduction of SDR-denominated securities, which is being studied by the IMF, will be a good start.

Further improve the valuation and allocation of the SDR. The basket of currencies forming the basis for SDR valuation should be expanded to include currencies of all major economies, and the GDP may also be included as a weight. The allocation of the SDR can be shifted from a purely calculation-based system to one backed by real assets, such as a reserve pool, to further boost market confidence in its value.

Many analysts view the campaign by emerging markets for a new reserve currency as an attempt by to gain more control in the IMF, which has traditionally been dominated by richer countries. But the new currency campaign is also further evidence that Beijing is becoming less and less comfortable with its large holdings of U.S. assets, namely Treasuries.

Concerns about the dollar losing value have escalated in recent weeks as the U.S. Federal Reserve pursues a policy of quantitative easing in an effort of taming the financial crisis.

“We have lent a huge amount of money to the United States,” Chinese Premier Wen Jiabao said earlier this month. “Of course, we are concerned about the safety of our assets. To be honest, I am definitely a little bit worried. I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets.”

China is the world leader with $2 trillion in foreign currency holdings. About half of that is held in U.S. Treasuries and notes issued by other government-affiliated agencies, such as Fannie Mae (FNM) and Freddie Mac (FRE).

WASHINGTON (AFP) — US President Barack Obama has defended the dollar as “extraordinarily strong” and rejected China’s call for a new global currency as an alternative to the dollar.

He said investors considered the United States “the strongest economy in the world with the most stable political system in the world” even as it was reeling from a prolonged recession stemming from financial turmoil.

People’s Bank of China Governor Zhou Xiaochuan had called for a replacement of the dollar, installed as the reserve currency after World War II, with a different standard run by the International Monetary Fund.

“As far as confidence in the US economy or the dollar, I would just point out that the dollar is extraordinarily strong right now,” Obama told a White House press conference on Tuesday.

He said that although the United States was “going through a rough patch” at present, it enjoyed a “great deal of confidence” from investors.

“So you don’t have to take my word for it,” he said.

“I don’t believe there is a need for a global currency,” Obama said, in what appeared to be a break from tradition among US presidents not to comment directly on the dollar’s value.

Zhou suggested the IMF’s Special Drawing Rights, a currency basket comprising dollars, euros, sterling and yen, could serve as a super-sovereign reserve currency, saying it would not be easily influenced by the policies of individual countries.

China is the largest creditor to the United States, being the top holder of US Treasury bonds worth 739.6 billion dollars as of January, according to US figures. It is also the world’s largest holder of US dollars as a reserve currency, at more than one trillion dollars.

Zhou’s comments came just two weeks after Chinese Premier Wen Jiabao, in a rare expression of concern, called on US economic planners to safeguard Chinese assets.

“We have lent huge amounts of money to the United States. Of course we are concerned about the safety of our assets,” Wen said as the United States grappled with the worst financial turmoil since the Great Depression.

The latest Chinese concern came as the dollar took a beating following the Federal Reserve’s decision last week to buy up to 300 billion dollars in long-term US Treasury bonds and boost its purchases of mortgage securities by 750 billion dollars in an effort to revive the ailing economy.

The decision, according to foreign exchange dealers, made US assets less attractive to investors worried that the Fed move would end up debasing the world’s reserve currency.

Despite the financial meltdown at home, the dollar has been mostly regarded as “safe haven” by investors averting risks amid a global economic slump.

The idea of a global currency determined by multilateral organizations is not new, said John Lipsky, the IMF’s first deputy managing director.

“But it’s a serious proposal,” he said in Washington.

And he hastened to add, “I don’t think even the proponents think it as a short-term issue but as a longer-term issue that merits serious study and consideration.”

EU Economic and Monetary Affairs Commissioner Joaquin Almunia said the dollar would remain unchallenged as the top reserve currency even as emerging economies such as China play a more critical role in the global economy.

He said, “I don’t expect major structural changes in the role that the dollar plays today as a reserve currency.”

The debate over the dollar’s role came ahead of the G20 summit of developing and industrialized nations on April 2 in London, where world leaders and international organizations, including the IMF, are to discuss reforming the financial system.

Russia has also proposed the summit discuss creating a supranational reserve currency. The IMF created the SDR as an international reserve asset in 1969, but it is only used by governments and international institutions.

They’ve Seen the Future and Dislike the Present

Two hours into Z-Day, the educational forum associated with the online movie “Zeitgeist,” Peter Joseph, the film’s director and the evening’s M.C., stepped out from behind his lectern and walked forward earnestly on the stage.

futurist, talked with young admirers in the audience about his Venus Project.

In his goatee and mustache and tieless in a brown suit, Mr. Joseph had been lecturing for nearly 90 minutes on the unsustainable nature of the money-based economy — on cyclical consumption, planned obsolescence, corporate malfeasance and piles of poisonous waste. “It’s time that we wake up,” he intoned, speaking solemnly through a wireless clip-on mike. “The doomsday scenario, the big contraction, might be happening right now. The system of monetary exchange is — in the face of advancing technology — completely obsolete.”

This drew wild applause from the sold-out crowd, a patchwork of perhaps 900 people who paid $10 a head on Sunday night to sit in a packed auditorium at the Borough of Manhattan Community College on Chambers Street near the West Side Highway. Z-Day events were taking place from New England to New Zealand, but this was the big one: the marquee happening with the marquee names.

There, in the crowd, was Jacque Fresco, an industrial designer and the engineering guru of what people unironically called “the movement.” Mr. Fresco, an elfin 93-year-old, sat beside his partner, Roxanne Meadows, smiling self-effacingly.

Mr. Joseph, back on stage, waited patiently as some of the crowd, still cheering, refused to leave their feet.

If the election of Barack Obama was supposed to denote the gradual demise of churlish, corporate governance and usher in a new, sustainable era of visionary change, there was little sign of it at the second annual meeting of the Worldwide Zeitgeist Movement, which, its organizers said, held 450 sister events in 70 countries around the globe.

“The mission of the movement is the application of the scientific method for social change,” Mr. Joseph announced by way of introduction. The evening, which began at 7 with a two-hour critique of monetary economics, became by midnight a utopian presentation of a money-free and computer-driven vision of the future, a wholesale reimagination of civilization, as if Karl Marx and Carl Sagan had hired John Lennon from his “Imagine” days to do no less than redesign the underlying structures of planetary life.

In other words, a not entirely inappropriate response to the zeitgeist itself, which one young man, a philosophy student in a roomy purple blazer, described before the show began as “the world as we know it coming to an end.” As the evening labored on with a Power Point presentation, a panel talk with Mr. Fresco and a spirited question and answer session, some basic themes emerged: modern economics is a fraud; global debt will crush the planet; society itself is dying from the profit motive; and people ought to wise up to the fact that more than legislation — or presidential administrations — needs to change.

Though they were never actually shown — as most in attendance had seen them several times — Mr. Joseph’s two films, “Zeitgeist, the Movie” (released in 2007) and “Zeitgeist: Addendum” (released last fall), were the subtext of the evening: online documentaries that have been watched, he says, by 50 million people around the world.

The former may be most famous for alleging that the attacks of Sept. 11 were an “inside job” perpetrated by a power-hungry government on its witless population, a point of view that Mr. Joseph said he has recently “moved away from.” Indeed, the second film, the focus of the event, was all but empty of such conspiratorial notions, directing its rhetoric and high production values toward posing a replacement for the evils of the banking system and a perilous economy of scarcity and debt.

That’s where Mr. Fresco came in, an author, lecturer and former aircraft engineer at Wright-Patterson Air Force Base in Ohio who has spent the last six decades working on the Venus Project, a futuristic society where (adjust your seatbelts, now) machines would control government and industry and safeguard the planet’s fragile resources by means of an artificially intelligent “earthwide autonomic sensor system” — a super-brain of sorts connected to, yes, all human knowledge.

If this sounds vaguely like a disaster scenario out of “2001: A Space Odyssey,” Mr. Fresco did not seem worried in the least. Machines are unemotional and unaggressive, unlike human beings, he told the crowd during the question-and-answer phase. “If you took your laptop and smashed it in front of 50 other laptops, trust me, none of them would care.”

The audience — white, black, young, old, baseball caps and business suits alike — received such words like a tonic, and the questions kept coming: What would family life be like in the future? What would happen if the automated system decided that a person had to die? Mr. Fresco and Ms. Meadows are planning the production of a major feature film to bring the Venus Project to a wider, global audience. Before the night began, Mr. Fresco, a small man with a V-neck sweater and a hearing aid, sat signing books and answering questions from a dozen or so college students gathered like acolytes at his feet.

As the evening came to a close, someone finally asked: So what would it take to actually put such a program into action? A grassroots movement, Mr. Joseph said.

“We already have a quarter-million members,” he insisted from the stage. “At the rate things are going, this will be at Madison Square Garden next year.”

With the economic news seemingly becoming worse by the day, there has been much talk about the possibility of deflation – a prolonged period of falling general prices.

But why would this be so bad? After all, surely deflation is good for households if it means that the cost of the goods and services is becoming cheaper?

There are a few reasons it’s not that simple. First, prices tend to be influenced by the state of the economy. If demand is greater than the supply of goods and services then prices rise. If demand is weaker –as is the case at the moment – then prices can drop. So falling prices tell us something about the fragile shape of the economy.

A fall in prices is bad news for companies that make or sell the products we buy. Imagine a retailer having to cut prices to shift stock, but at the same time paying more for imported goods because of the fall in pound’s value. This causes profits to turn to losses, meaning some retailers will go to the wall, and many will cut staff.

Deflation, therefore, doesn’t just mean lower prices – it also means higher unemployment and lower wages. It will become much more difficult for those people who’ve lost their job or had to take a pay cut to continue repaying their debt.

Some might be forced to sell their house to pay off the mortgage – but the more people who do this, the more house prices may fall (causing negative equity). And if house prices fall that can be a blow to confidence leading to a weaker economy which in turn might perpetuate deflation. It is easy to see how a vicious cycle can develop.

Consider the situation in which we have deflation, and more importantly we think it is going to continue. There is, then, little incentive to spend money today – we may as well wait until tomorrow when prices will be lower. And tomorrow we might think the same again, deferring our purchase indefinitely.

This is what happened in Japan in the 1990s – deflation came, and shoppers disappeared. Economic growth turned to economic contraction, and we witnessed what became known as Japan’s “lost decade”. Following a brief interlude where growth returned, a second lost decade seems to be in the making.

Even worse was the Great Depression. In the 1930s share prices tumbled leading to an economic slump of epic proportions – and, of course, deflation and falling wages. The crash that led to that depression was caused by investors buying shares with borrowed money, pushing their prices up to ever unsustainable levels. This time round it was excesses in the housing market and the financial sector.

Governments are now trying to spend their way out of recession, attempting to fill in the gap left by households and firms. The Bank of England is helping too by bringing interest rates down to exceptionally low levels – making it less desirable to save and thereby encouraging spending.

It is still very uncertain as to how all of this stimulus will affect the economy. The pressing need is to avert a period of deflation, but the risk is that too much policy easing could cause exactly the opposite